Short-sellers sitting out another round
The Securities and Exchange Commission extended a ban on stock short-selling put in place last month. Stacey Vanek-Smith looks into why the SEC enacted the ban in the first place and the dangers of short-selling.
A trader looks over computer monitors showing financial data on the floor of the New York Stock Exchange. (Chris Hondros/Getty Images)
More on Investing, Wall Street, America's Financial Crisis
TEXT OF STORY
Renita Jablonski: Last month, the Securities and Exchange Commission banned the short-selling of stocks for hundreds of financial firms. Short-sellers have been blamed for much of the trouble in the markets -- the downfall of Lehman Brothers, for instance. The ban was set to expire tonight, but the SEC just extended it. The ban will now stay in place at least until after Congress enacts the bailout. Marketplace's Stacey Vanek-Smith has more.
Stacey Vanek-Smith: The SEC banned short-selling to protect vulnerable companies at a critical time, says Georgetown finance professor James Angel.
James Angel: In this very fragile environment, it may not take a lot to push an otherwise viable institution over the edge. And that's why the SEC acted.
But Angel says the ban is mostly symbolic, a move intended to shore up confidence in jittery markets.
Mark Coffelt, portfolio Manager for Emperic Funds, says short-sellers aren't the problem:
Mark Coffelt: The reason the banks failed is they had inadequate capital.
Coffelt says short-selling can drive down prices, but it can also serve as a warning system that companies are in trouble. And keep share prices honest. He says investors who buy stocks protected by the ban:
Coffelt: Are probably not getting the true prices for the stocks, they're probably over-paying.
The ban's extension means short-sellers will have to sit out another round.
I'm Stacey Vanek-Smith for Marketplace.
Comments
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10/03/2008
Aren't unregulated, free markets meant to be the answer to the world's problems...? If not, what exactly is America based upon?
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